Don't most billionaire's make their money by owning lots and lots of a single stock? Looking at the top 10 billionaires in the USA, it would seem the billionaire index should consist of 1 part MSFT, 1 part BRKA, 1 part ORCL, and 4 parts WMT.

Why on earth would it make any sense for me to invest like a billionaire? It would make as much sense as my dancing like Miley Cyrus.

"In theory you should be able to get rich by investing in the same stocks they invest in." What theory is that? I don't know that theory. Where would I go to find published research on that theory?

Oh, wait. Here's the video asterisk:

The person talking makes another point that should be on the slide but isn't. He says the billionaires have "risk tolerance very different from the average investor." By "different," I rather suspect he means "higher."

Now, not all wealthy people necessarily do. The more wealth you have, the more your investing strategy is dominated by your "relative risk aversion" which can go either way. Someone with increasing relative risk aversion says "I've won, why should I continue playing?" and throttles down risk in order to preserve what's been gained. Suze Orman (who alas only has 1/40th of a billion) has less than 4% of her portfolio in stocks according to interviews a few years ago, would seem to fall in that category. Someone with decreasing relative risk aversion says "I have so much now I can go for the gusto, grab for the brass ring, etc. etc. because now I can afford to lose a high percentage of it." So, what do we know about the risk aversion of these billionaires? If it is "very different" from ours, either way, we should not be investing like them.

And there's another problem. Is this index tracking the investments these billionaires make personally, or is it tracking the investments they make in their roles as investment managers of their firms? Because that would not be the same thing.

Last edited by nisiprius on Wed Nov 13, 2013 6:56 pm, edited 2 times in total.

I was looking at this today. On the website's holdings page they list 30 holdings. Of those paying a dividend of 2% or more, 2 beat the median and 9 lagged. Of those paying less (all of which were less than 1.5%), 13 beat, 2 lagged and 4 approximately matched. Which would (forgive the over-generalization) indicate that the dividend stocks are intended as conservative lower-beta investments and the real money is being made in the others.

I then compared the list to the QUAL etf which I hold and which has outperformed. 9 of these stocks are in the QUAL holdings.

I then compared to the Schwab stock rating system, which has also served me well when I have used it for guidance and all 9 of those stocks were rated C (average, hold) or D (sell) by Schwab.

I have no idea what to make of all this but I do think that in a market where bonds are risky and many pundits are calling for the bull to continue roaring for a few more years and others are calling for an imminent crash, a rotation from small to large and from growth to value makes sense as a way to reap the benefits of a bull and dampen the losses of a correction (i.e., a low volatility strategy). And indeed that is what we've been seeing over the past month (compare the relevant Vanguard funds). In which case a stock like MA which is held by QUAL and by the billionaires and is rated hold by Schwab, might just be an example of the type of holding that will do well in the near term (at least). (I don't hold it directly and don't plan to as it doesn't fit my current allocation needs).